tv [untitled] June 6, 2012 12:00pm-12:30pm EDT
they seemed less convinced during the drawing up of dodd-frank, but if there are changes to dodd-frank there may be somewhere we'll want to look and especially the discussion for mr. toomey and mr. moran on the importance of higher capital requirements. mr. curry, my questions will be with you, refer to you, if i could. i've sent you a number of written questions. i look forward to your prompt and substantive response and would appreciate those answers prior to mr. dimon appearing in front of this committee next week. i really hope you are able to do that. last june about year ago my subcommittee held a hearing on bank examination and supervision at which the occ pefed. you weren't here. i appreciate you taking the responsibility of this job. it's difficult in these circumstances especially were the the reputation of the history of your agency. i want to share some of that testimony and i appreciate -- i would -- insist on brief answers because i have several questions and limited time.
you know how this works and would particularly appreciate a yes and no response. david wilson head of credit and risk testified "given the importance and the role these large ins station play and the overall stability of the united states we've instructed our examines these are ogss should not operate with anything less, with anything less than strong risk management and audit functions, any less will no longer be sufficient." jamie dimon himself said jpmorgan's trades were flawed and complex and poorly reviewed. poorly executed, poorly monitored. yes or no on this question. did occ meet the standard prior to your being there, meet the stharnd it set for itself in this case? >> before i answer that, i do want to acknowledge that we are working on your written responses to your written letter and will endeavor to get it to you prior to jamie dimon's testimony. >> thank you. >> in this answer i think the answer is, no, not in the
particular case of the cio's office. it does not appear that they met the heightened expectation of the demand. >> thank you for your answer. mr. wilson also said at that hearing that every report of examination is reviewed and approved by the dep ted controller before finalized. both have final assurance, processes that affect the effectiveness of our supervision and compliance with occ policies. again, i know you were not there, but did they just not -- did the deputy controller and the assistant deputy controller simply not know about them? >> this is part of the inquire they we're conducting as to determine how we can improve our processes. >> thank you for that. your written testimony suggests that the examiners and supervisors were unaware of the activities occurring at jpmorgan's chief investment office until april of this year, and what's intriguing about that is this -- this office was making $360
billion in trades. this is larger than the assets of 7,299 banks in the united states. if this were a stand-alone bank it would be the eighth largest bank in the united states. it was making a trade that you say is the biggest, most complex trade in the entire banking system, and the question, then, is this -- should the eighth largest bank in the nation be allowed to make the biggest, most complex trade, your words, in the entire banking system without the occ's knowledge? >> we would expect to be aware of significant risks to have the bank identify them and for us to have adequate reporting about those risks. i would just clarify that the cio's office invests a pool of approximatelies 3y $350 billion this particular area was a discreet portion of it and that may be part of the reason why it
was not identified as quickly as we would like. >> still should have been identified, and that's an issue of the structure of occ. again under different management than when you were there. and you are there now, of course. this is, you know, this is not about -- i hear, and this will be a discussion for next week, but i hear about the $2 billion or $4 billion lost at the chief investment office. that's serious, but obviously more than that. jpmorgan took a $25 billion hit to their stock. that's 401(k)s, pension funds, that is a loss of wealth to a large number of people. we went through that in multiples higher than that, of course, two and three years ago. but there are, they're a signal a that the market believes this demonstrates bigger problems in the management and oversight at jpmorgan. this begs the issue that these trillion dollar, $2 trillion in that case, mega banks are not just too big to fail, they're too big to manage and they're too big to regulate, but the occ's position has been that,
"they do not subscribe to the view that big in and of itself is bad." as long as occ continues to insist that big, complex banks are actually essential to our economy, they're responsible for their inability to properly examine and supervise these mega, mega banks. i appreciate your working to improve nor oversight but i heard the same promise last year, again, under different management. for the occ to in your words determine what in retrospect the ocht occ could have done differently. you want to look forward, that's your job, but you need to identify what mistakes were made, by whom those mistakes were made and if j.b. morgpmorg hold senior executives accountable, we should expect nothing less than you, mr. curry and the people who work with you, whether they're the people there now or the people whom you replace them with. thank you.
>> senator schumer? >> thank you, mr. chairman and thank the witnesses. one of the obvious issues raised is the role of risk mct at banks especially large banks, as some of you know, i fought to have included in dodd-frank a provision, section 165h requiring all banks with over $10 billion in assets and all non-bank financial firms supervised by the fed to have a separate risk committee that includes at least one "risk management expert having experience and identifying assessing and managing risk exposures of large, complex firms." now, mr. curry, in your testimony you say, "you will require the bank to adhere to the highest management standards." in your assessment did the jpmorgan risk policy committee have sufficient expertise in risk management to carry out its duties? also, it's been reported
jpmorgan is changing the composition of its risk policy committee. can you provide the committee with an update on those changes and discuss whether you think the new members of the committee have sufficient expertise? >> the risk -- the introduction of a risk committee through dodd frank i think is a welcome improvement to the overall corporate governance of financial institutions, particularly large institutions and we view the role of the board in terms of corporate governance as a mitt mitt ta gant of sound management. in this particular case there appears to have been a breakdown at the cao's risk management architecture and system and control controls. that is a matter of significant
concern to us at the ochtc and e that is not endemic throughout the entire organization. we hope that the reconstituted risk committee members of the board will be experts in -- >> have you reviewed the risk committees of other banks with over $10 billion to determine whether they have the necessary expertise, and that's for mr. tarullo as well. >> senator, i think one of the virtues of the provision that you referred to is that as one of the enhance the pro desudent standards, meaning for large institutions, the large institution supervision committee will look at each and compare them. i think it's that process which is actually going to give the individual supervisory teams on the ground more guidance and more insight as to what they should expect. >> and i suppose there's some
difference. there's some banks that are over $10 billion that are pretty plain vanilla banks and other that are doing -- >> that's correct. >> doing fancy sometimes unfathomable things? >> that is correct. >> you didn't correct the word unfathomable. mr. curry, are you reviewing other banks as well? >> that's a critical component of our assessment of corporate governance and the overall risk management policy. >> so you are? >> yes. >> okay. second question -- now, this is for you, mr. curry. jpmorgan the derivative trades made by a group part of the u.s. bank but apparently all booked in london. do you as the u.s. regulator have full access to the information you need trading act tivgty conducted in london if carried out by u.s. bank and what more needs to be done to improve coordination with international regulators to prevent these kind of cross-border losses? >> the london operations at jpmorgan are conducted through a
branch of the united states national banks. so in terms of jurisdiction, we have clear jurisdiction over the activities of that branch. in the case of jpmorgan chase, those activities are managed on a global basis through the new york office where we have the majority of our core staffing at the occ. >> okay. good. all right. third question. it's about early warning systems. traders at several hedge funds, we've read in the newspapers, have been able to spot the jpmorgan trade through its ig regular impact on the market for credit driv tiderivatives. begs the obvious question. why didn't the regulators know? obviously regulators can't micromanage every trading position at every bank. that would be impossible for you to do. but it is possible, but is it possible, rather, to build an early warning system that could warn us if, say, a single company accumulates unusually large positions in any single product? as it appears with the jpmorgan
case? last month i asked the sec and cftc chairman if it would be possible. they both said with the new information to be reported under dodd-frank we will be able to set up early warning systems that could identify risky positions before they blow up. so my question goes to both you, mr. tarullo and any other whose care to add their opinions. what can and should regulators to do improve their ability to identify potentially risky trading activity ahead of time? and i realize foresight is a gift and it's not easy, but at least when you're getting above a certain level of money, a little bell could go off and maybe it's a perfectly plain safe vanilla trade and maybe it's not but wouldn't ask you to get involved in every little thing the banks doing. i'll first go mr. tarullo, mr. curry and anybody else. >> first off, obviously, the risk management of the firm as overseen by the supervisors which should include and
generally does include things like position limits nap should be a first early warning. secondly, senator, we do already within our supervisory process look at market indicators including aggregated market information to try to identify trends that might be relevant to the particular institution. but that, our ability to do that obviously depends on the relative gran larpty or specificity of the information and i think in this case, for example, i believe there were products which lon they could be a big part of the market, jpmorgan could be a big part of a market, for the overall financial markets we're still relatively small. unless there's reporting on more specific products like that, our normal look at market information wouldn't have -- wouldn't have revealed this. so it has to come internally. >> yeah. and what about after dodd-frank is fully implemented? will you get more specific information? >> yeah.
there i think -- there i think what's most important is when a firm is taking a hedging position, it will be required to specify what its strategy is and what its risk management and what the monitoring of that strategy will be and the supervisors will have -- beforehand access to that information rather than have to rely on us going in afterwards. >> okay. so you think it will improve with dodd-frank? >> i think it will improve. >> being implemented. mr. curry? >> as mentioned think, w eed th complex investment. it would have been very helpful if there were market or other data available that would highlight this concentration to us as a regulator so to the extent dodd-frank act does provide that, or that there is other readily available market information that we could utilize it would be very helpful. >> and the fact they have to report and justify this. sdp that tend to be prophylactic
or do they still have to do that within the bank anyway so it doesn't make a difference if they send the report to you? >> the reporting would be very helpful and that's one of the issues whether there was add kwasy of reporting and whether that reporting was available to the occ and the federal reserve examiners. >> my time's expired. anyone else care to comment? okay. thank you, mr. chairman. >> thank you. senator shelby has additional questions. >> thank you. governor tarullo, in your testimony, you stay, and i'll quote, and i want to be like senator toomey and agree with you on this. and you said -- recent events serve to remind us that the presence of substantial amounts of high quality capital is the best way to ensure that significant losses at individual firms, meaning financial institutions, are borne by their shareholders and not depositors or daxpayers.
taxpayers. what percentage of capital under basel 3 will large banks likely hold, and under the new enhanced capital standards, and will this amount, in your judgment, be sufficient? i think there's -- i think it's a given here that there's no substitute for capital. you can regulate everything in the world, but if they have inadequate capital and you know what's going to happen, sooner or later? >> so, senator, as you know, i -- because i believe the centrality of capital. i don't think it's the only way. >> oh, no. >> but it is a central way. >> but it's number one. isn't it? >> in my judgment, yes. >> uh-huh. >> the basel requirements are for 7% common equity ratio, which is a substantial increase over the -- >> tell the public what you mean by common equity, 7%. >> so what it -- traditionally
measures of capital, the measure of capital the matter is cheer 1 capital 0 could include common equity people think of as share holdings. shareholder earnings, retand earnings, what they've put into the company, but it also included some other kinds of hybrid instruments. the loss absorption capacity of which for an ongoal firm is not at strong as for common equity. basically, pre-crisis, if you went down, dig down into the requirements, it was only, really, a 2% common equity ratio requirement. meaning had you to have common equity, which was at least 2% of your risk weighted assets. basel 3 takes that up to 7% for banks generally. and then as you reference, with respect to very large institutions, there will be once with implemented our additional authority, a surcharge, which at present we think will be between
another 1 percentage point and 2.5 percentage points. now, is that enough? well, as i've said publicly before, my preference would have been to have both somewhat higher, but these were negotiated internationally. we did set them with an eye to those other regulatory tools that you talked about. so there are some restraints on activities. there's some market discipline. there's some supervisory capacity, and it's always going to be a balance as to how much capital is enough given what other tooling you have. tools you have. >> do you believe that our banks are overall in much better shape than they were three years ago? >> yes, senator. >> you agree with that, secretary? >> i do, senator, yes, absolutely. >> mr. -- >> definitely. with respect to national banks and federal thrifts. >> yes, senator. >> okay. and do you believe that a lot of it is because of required capital and the buildup of
capital? not everything, but do you believe that that's central to that? governor tarullo? >> i do believe it's central but i do also think there's been a good amount of derisking during that period. >> is there a -- is there -- is there some risk to the economy if people try to take most risk out of the banking system? in other words, you make a loan. that's a risk. you hedge something. that's a risk, when you're trying to manage risk. you can't take real risk out of the financial system. can you? mr. secretary? >> oh. sorry. >> no, you can't, secretary. >>y wouldn't want to, would we? >> you wouldn't want to. >> governor? >> that's correct. it's always a question of, one properly understood and managed risk and two, of course, a capital buffer when things happen that you don't anticipate. >> i would agree with the governor. >> i agree, also, senator. >> thank you, mr. chairman.
>> thank you all for your testimony, and for being here with us today. now, with a continued threat from europe and the recent reminder that risks and the financial system must be appropriately managed, we must remain vigilant and complete the implementation wall street reform to enhance and reduce systemic -- this hearing is adjourned. [ gavel sounds ]
our live coverage continues this afternoon at 2:00 eastern as a house foreign affairs subcommittee looks sbik corruption in afghanistan. officials with the government accountability office will testify along with a representative from usaid, distributing development aid in afghanistan. tomorrow, federal reserve chairman ben bernanke gives his annual economic outlook report to congress. the joint economic committee hearing begins at 10:00 a.m. eastern, and we'll have live coverage here on c-span3.
mr. gorbachev, tear down this wall. [ applause ] >> sunday night at 9:00 eastern and pacific, on american history tv, mark the 25th anniversary of president ronald reagan's 1987 speech from the brandenburg gate in west germany. also this weekend on c-span3, our series, the contenders. 14 key political figures who ran for president and lost, but changed political history. this sunday at 7:30, james blaine, american history tv, this weekend on c-span3. media organization executives are citing progress in their dispute with the labor department over its plan to acquire news organizations to use government computers to file stories on jobs data. reuters and bloomberg news use special equipment in the labor equipment that sends the information directly to subscribers as soon as the data is released. media officials testified before the house oversight and
government reform committee. this portion of the hearing is about an hour. [ gavel ] good morning. the oversight committee will come to order. we in the oversight committee exists to secure two fundamental principling. first, americans have a right to know the money washington takes from them is well spent, and, second, americans deserve an efficient, effective government that works for them. our duty on the oversight and government reform committee is the protect these rights. our solemn responsibility is to hold government accountable to taxpayers, because taxpayers have a right to know what they get from their government. we will work tirelessly in partnership with citizen watchdogs to deliver the facts to the american people and bring genuine reform to the federal bureaucracy. when president obama took office, he promised the american people to have a more
transparent administration, the most transparent administration in history. from that point on, this was a standard that the obama administration would be held to. almost four years later, more and more it seems that their own actions, the actions of this administration, say just the opposite is true. the department, the u.s. department of labor led by secretary hilda solis, has unilaterally changed methods by which the media accesses the bureau of labor statistics job data. this unprecedented action has serious freedom of the press implications. let there be no doubt we appreciate the need for simultaneous release of this sensitive information. but that has been accomplished for more than a generation through a procedure that was much more effective, as
effective, as more acceptable to the media itself. the abrupt nature of this change coupled with the absence of a clear explanation and a lack of public input raises key questions about who made this decision to implement this change and why? did that individual have the authority of law? as the committee has examined this isn't the first time the issue of the labor department's reach into the burp bureau of strifks. you'll recall the bureau received $500 million in stimulus funds to train workers for so-called green skills. but an audit by the inspector general found the program to be an utter failure and represented a tremendous loss toff t the taxpayer. this uncluded training for occupations that are hardly green, such as welder, sheet
metal worker and machine operator. certainly those are jobs that may be needed. the skills are valuable, but they're certainly not all of a sudden green after hundreds of years of being around as a profession. aside from the excuse -- excuse wasteetrated the department of labor, there is been using the guys of green jobs to justify ongoing funding of the president's green agenda. however, the standard they have invented includes counting as a green job, in addition to the welder, college professors are now green. environmental reporters are now green. policy experts at any think tank can be green. in fact, lobbyists can be green. now, i've been in washington nearly 12 years. there's a lot of green with lobbyists, none of it should are
counted as environmentally green jobs. there are 33 -- 33 times as many so-called green jobs in the septic tank -- you can't make these things up, guys. septic tank and portable toilet servicing industry as there are in solar energy and utility areas. more than 160,000 of these green jobs are related to school bus drivers. uses thick tahese numbers is nothing short of embarrassing and a betrayeral of the standards that president obama established for his administration. transparency begins with honesty. you cannot send out false propaganda and then say you're transparent. the truth is essential. the barest of the truth is essential. unfiltered, if you are to be tra transparent. we appreciate this administration has an opinion
and this chairman an opinion that's sometimes different. we are entitled to our opinions. we are not entitled to our facts. and isn't it any wonder that as such concerns why -- why there is such concern now that secretary solis' department wants to unilaterally change and control how the press receives jobs numbers from the bureau of labor statistics? of course, when invited to a appear today to explain why this change in freedom of the press would occur, secretary solis in no uncertain terms turned down all invitations and offered us alternatives. we appreciate those who are here as alternatives. however, ultimately, if you're the secretary of labor, the buck should stop with you. if it doesn't stop there, where can the american believe -- americans believe it stops? it doesn't stop at the white house if the secretary allows something to happen and then
doesn't have an answer. we will hear more about that here today, and i hope it will send a clear message to the administration. with that i recognize the distinguished ranking member for his opening statement. >> thank you very much, mr. chairman, and i thank you for holding today's hearing. which appears to be focus on two very different topics involving the department of labor and bureau of labor statistics. the first topic is the integrity of the department of labor's job reporting. democrat of labor strike as balance between preventing the unauthorized release of key economic data and providing journalists with access to that data ahead of time see that they can prepare their stories context about the broader employment situation. this balance is very important. the media are the publics eyes and s,